Reports on Thursday probably show that the Germany’s economy, the largest in Europe, contracted in the third quarter. However it is not only a euro’s problem when all major economies are facing the possibility of a recession together for the first time since WWII. The market is likely to be affected by speculations about the Washington Summit on Nov 15, where the world’s leaders are expected to pledge to coordinate their efforts and policies to stimulate economic growth and limit financial risks.
GDP in Euro-area
European Commission has already lowered its forecast for the economic growth across the Europe and it is expected that the preliminary estimates of the third quarter GDP from Germany, France, Italy, and also the Euro-area all in this week just confirm that view.
GDP numbers along with other weak economic data, especially the German ZEW Survey of economic activity on Tuesday, might keep the euro under pressure. Some analysts compare the last week’s decisions from the European Central Bank to the Bank of England’s on cutting interest rates and come to this view that the ECB may be behind the curve by being reluctant to do in a more aggressive way.
Inflation and Policy Flexibility
Expect no good news but from the inflation! It has been the only bright aspect of the global economy in recent months when the widespread slowdown damped commodity prices and eased inflationary pressures.
Consumer Price indexes are estimated to show another decline in Europe and the market may see it as a positive sign that the policy makers are still flexible enough to stimulate growth for a longer period of time.
The BOE will release its Quarterly Inflation Report on Wednesday which probably shapes the market’s expectations about the future of monetary policy in the U.K. and certainly the sterling. Before that, a report on Monday may show that the Producer Price Index in the U.K. fell again in October, still a 7.4 percent high from a year earlier, but regarding the recent aggressive rate cut by the BOE any good news might help the currency at least in a very short term.
U.S. Retail Sales
A Commerce Department’s report on Friday may show that the retail sales in the U.S. fell more than one percent in October, the most since the last recession in 2001. Considering the shopping season in less than two months before the year end, it could completely darken the prospect for the consumer spending in the U.S.
At the same day the Fed’s chairman Bernanke is scheduled to speak at a conference in Frankfurt, along with his European counterpart Trichet, and it could give the market a temporary boost should they signal the possibility of more rate cuts in the future.